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DECREE

DETAILING AND GUIDING A NUMBER OF ARTICLES OF THE ORDINANCE ON DEFENSE INDUSTRY

THE GOVERNMENT

Pursuant to the December 25, 2001 Law on Organization of the Government;

Pursuant to the January 26, 2008 Ordinance on Defense Industry;
At the proposal of the Minister of Defense,

DECREES:

Article 1. Scope of regulation

This Decree details and guides Point d, Clause 1, Article 5 of the Ordinance on Defense Industry on export, import and procurement of defense commodities; Clause 2. Article 7 of the Ordinance on Defense Industry on making lists of defense industry establishments: Clause 4, Article 8 of the Ordinance on Defense Industry on the entry of core defense industry establishments into joint ventures or partnerships; Clause 2, Article 10 of the Ordinance on Defense Industry on the list of products and services for defense and security; Article 18 of the Ordinance on Defense Industry on import and reserve of technical supplies for defense industry; Article 20 of the Ordinance on Defense Industry on scientific research, development and transfer of technologies in service of defense industry: Point h. Clause 1. Article of the Ordinance on Defense Industry on the State's policies towards core defense industry establishments; and Article 23 of the Ordinance on Defense Industry on policies towards organizations and individuals engaged in defense industry activities.

Article 2. Export, import and procurement of defense commodities

1. Principles for export, import and procurement of defense commodities:

a) Export, import and procurement of defense commodities must comply with plans approved by competent authorities; abide by the State's laws and regulations and treaties to which the Socialist Republic of Vietnam is a contracting party; and be strictly managed to ensure confidentiality, safety and effectiveness;

b) Only defense commodities of standards and quality equivalent to or higher than those of defense commodities produced by defense industry establishments are allowed to be imported in case locally made commodities are insufficient;

c) It is prohibited to import or procure weapons and military technical equipment from unidentified foreign organizations and individuals or of unidentified origin; involved in trade frauds; or with improper technical or tactical properties or utilities;

d) Export, import or procurement of defense commodities shall be conducted under contracts.

2. Defense commodities which enable the army to perform military and defense tasks include weapons, technical equipment, technological lines and products, services, supplies and other commodities.

3. Defense commodities are divided into two types: special-use military commodities and dual-utility commodities.

a) Special-use military commodities include weapons, ammunitions, explosive materials, technical or technological equipment and tools, services and supplies for defense purposes;

b) Dual-utility commodities include technical or technological equipment and tools, services, supplies and commodities which can be used for both defense and socio-economic purposes.

4. Import of defense commodities directly from abroad for the army's military or defense tasks with state budget sources shall be managed by the Ministry of Defense.

5. Export of defense commodities covers weapons and military technical equipment; products, technologies and services of defense industry for military or defense use purposes; and military commodities procured on the behalf of or provided as aid for other countries' armies under treaties to which the Socialist Republic of Vietnam is a contracting party.

6. Procurement of defense commodities, including technical equipment, tools and supplies and other commodities for the army's military and defense tasks with slate budget sources, shall he managed by the Ministry of Defense.

7. The Ministry of Defense shall assume the prime responsibility for, and coordinate with concerned ministries, branches and agencies in, prescribing the order and procedures for export, import and procurement of defense commodities; working out plans and organizing the strict management of export, import and procurement of defense commodities.

Article 3. Defense industry establishments

1. Criteria for an establishment to be recognized as a defense industry one:

a) Being lawfully founded under a competent state agency's decision;

b) Satisfying all conditions and completing all procedures for conducting defense industry activities under the Prime Minister's decisions;

c) Receiving orders placed or plans assigned by the State for the production and supply of one or several products, product details or services for defense or security.

2. The Ministry of Defense shall assume the prime responsibility for, and coordinate with the Ministry of Industry and Trade and concerned ministries and branches in, making a list of defense industry establishments, then submit it to the Prime Minister for approval based on the criteria specified in Clause 1 of this Article.

3. Annually, the Ministry of Defense shall assume the prime responsibility for, and coordinate with concerned ministries and branches in. submitting amendments and supplements to the list of defense industry establishments to the Prime Minister for decision.

Article 4. Entry of core defense industry establishments into joint ventures or partnerships

1. Core defense industry establishments may enter into joint ventures or partnerships with domestic economic organizations of all economic sectors and foreign organizations and individuals to produce products for defense or security on the principle of voluntariness, equality and mutual benefit.

2. All activities of entering into economic joint ventures or partnerships shall be conducted under lawful contracts.

3. Core defense industry establishments are prohibited from selling, lending or leasing their legal entity status in economic activities.

4. When entering into joint ventures or partnerships with foreign organizations and individuals to produce products for defense, core defense industry establishments shall abide by the provisions on international cooperation of Article 5 of the Ordinance on Defense Industry and Article 2 of this Decree. In entering into joint ventures or partnerships, it is necessary to:

a) Clearly identify foreign partners through the verification by competent functional state agencies, especially in national security-related matters;

b) Prioritize foreign investment in domains and branches in which defense industry establishments have advantages, domains which require high technologies or domains in service of both defense and economic activities.

Article 5. Products and services for defense or security

1. Criteria for identifying products and services for defense or security:

a) They are necessary for defense or security activities;

b) If produced and supplied under the market mechanism, it is difficult to cover costs;

c) They are produced or provided under orders placed or biddings made by competent state agencies at prices or charge rates set by the State.

2. The list of products and services for defense or security is provided in the Appendix to this Decree.

3. In each period, the Ministry of Defense shall assume the prime responsibility for, and coordinate with concerned ministries, branches and agencies in, proposing amendments and supplements to the list of products and services for defense or security to the Government for decision.

Article 6. Import and reserve of technical supplies for defense industry

1. Technical supplies imported for defense industry are eligible for duty exemption or reduction consideration under the tax law.

2. Technical supplies for defense industry shall be reserved under the law on national reserves.

3. The Ministry of Defense shall assume the prime responsibility for, and coordinate with concerned ministries, branches and agencies in, making a list of technical supplies imported and supplies reserved for defense industry, then submitting it to the Prime Minister for approval.

4. In each period, the Ministry of Defense shall assume the prime responsibility for, and coordinate with concerned ministries, branches and agencies in, proposing amendments and supplements to the list of technical supplies for defense or security to the Prime Minister for decision.

Article 7. Scientific research, development and transfer of technologies in service of defense industry

1. Domestic and foreign organizations and individuals that participate in scientific research, development and transfer of technologies in service of defense industry shall comply with the laws on science and technology and technology transfer.

2. Domestic and foreign organizations and individuals that participate in scientific research, development and transfer of technologies in service of defense industry may enjoy favorable conditions for founding and operation registration; tax and credit incentives, and other preferential policies provided for by law.

3. The Ministry of Defense shall assume the prime responsibility for. and coordinate with the Ministry of Science and Technology in, working out and managing the implementation of plans on research and application of science, techniques and technologies to production, repair, innovation and modernization of weapons and military technical equipment used for defense and security tasks, prioritizing high technologies and dual-utility technologies, mechano-electronics, automation, electro-telecommunications, information technology, chemicals and new materials.

4. Projects on research into and trial production of new weapons, equipment and tools, and mass production and supply thereof for armed forces shall be implemented under law.

5. Domestic and foreign organizations and individuals shall:

a) Register standards, quality and models of defense products and provide warranty for these products under law;

b) Inspect the quality of defense products according to designing and technological documents, technical conditions and product standards set by competent agencies and take responsibility for the quality of their products;

c) Expand the forms of partnership and association in order to promote research and application of scientific advances to production, business and management. Supply scientific, technical and technological information, application of information technology to management work, and elaboration of econ-technical norms.

Article 8. The State's policies towards core defense industry establishments and their employees

1. When directly performing defense service tasks, core defense industry establishments may enjoy preferences, incentives and investment supports, specifically as follows:

a) Getting sufficient investment capital from the State for forming assets to be used directly in the production and supply of public-utility products and services;

b) Enjoying the State's investment in transport and energy infrastructure in areas where transport and energy supply systems are not yet available;

c) Being exempt from land rents, land use levy and tax for necessary land areas used during the period of performance of defense service tasks; and from value-added tax for a number of products for defense or security under the law on value-added tax;

d) Being allowed to account a number of special expenses into defense product costs or defense service charges, including salaries paid to would-be pensioners (in case these persons are ineligible for state budget supports or enjoy insufficient supports); expenses for procurement of uniforms and other military items for officers, career soldiers and defense workers and employees;

e) Being allowed to use resources allocated to them in producing and supplying defense products and services and conducting additional business operations without affecting the performance of their assigned defense or security service tasks, but required to separately account these business operations and fulfill the tax obligation under law;

f) Receiving state budget allocations for maintenance and regular repair of defense production lines in case of temporary production cessation which renders them unable to cover their costs;

g) Being considered by the Slate for supports equal to two months' paid salary for their reward and welfare funds, in case they have insufficient sources for setting up these funds;

h) Receiving the State's financial supports for building kindergartens and other educational establishments in localities where no schools or classes within the public education system are available; and for health care in localities where infirmaries need to be maintained due to particular conditions;

i) Core defense industry establishments operating in strategic localities and performing combined economic and defense tasks are entitled to incentives and other supports under the Prime Minister's decisions.

2. Employees of core defense industry establishments are entitled to the following:

a) Employees being officers or career soldiers may enjoy entitlements and preferential policies provided for by law for them, except for monthly salaries they actually receive according to production or business results;

b) Employees possessing university or higher degrees and technical workers in special defense occupations and leading technical workers of their branches may enjoy attraction allowances;

c) Employees engaged in research, manufacture, repair, preservation and transport of defense products being weapons or equipment or doing jobs requiring high responsibility may enjoy responsibility allowances during the time of performing their tasks; and hazard or danger allowances for special defense occupations or jobs;

d) Defense workers may enjoy, apart from salaries, salary-based allowances under regulations on salaries for cadres, civil servants, public employees and armed forces personnel;

e) Employees on the state payroll and working in defense production lines may enjoy salary supports from the State during the period of temporary cessation of defense production which renders their enterprises unable to cover their costs;

f) Employees who are wounded or die in accidents when performing defense or security service tasks in localities with particularly difficult socio-economic conditions or urgent or dangerous defense or security jobs will be considered for entitlements for war invalids or recognized as fallen heroes under the law on preferential treatment of people with meritorious services to the revolution.

3. The Ministry of Defense shall assume the prime responsibility for. and coordinate with concerned ministries and branches in, guiding preferential policies applicable to core defense industry establishments and their employees specified in Clauses 1 and 2 of this Article.

Article 9. The State's policies towards organizations and individuals engaged in defense industry activities

1. When directly producing defense products for defense industry specified in group 1 or group 2 of List A enclosed with this Decree, organizations or individuals may enjoy the following entitlements and preferential policies:

a) Exemption from land rents, land use levy and tax for necessary land areas used during the time of direct defense service;

b) Hazard or danger allowances when performing special defense tasks specified at Point c. Clause 2 Article 8 of this Decree. If these organizations or individuals are injured or die while performing these tasks, they may be recognized as war invalids or fallen heroes and enjoy entitlements for war invalids or fallen heroes like employees of core defense industry establishments specified at Point f, Clause 2 Article 8 of this Decree.

2. When directly producing defense products for defense industry specified in List B enclosed with this Decree, organizations or individuals may enjoy the entitlements and preferential policies under regulations on production and supply of public-utility products and services.

Article 10. The State's policies towards foreigners engaged in defense industry activities

1. Foreign organizations and individuals that invest in Vietnam under the investment law will be leased land by the Vietnamese State, in case they are allowed to lease land from enterprises building and dealing in infrastructure of industrial parks and hi-tech parks to which land has been allocated by the State, they shall comply with the land law.

2. When engaged in defense industry activities to produce products and product details, conduct scientific and technological research or technology transfer for the manufacture of products for defense or security purposes, foreign organizations and individuals may be exempt from value-added tax under the value-added tax law. Enterprise income tax will be exempt for investors contributing as capital inventions, technical know-how. technological processes or technical services. Enterprise income tax will be reduced for income from the transfer of foreign investors' capital amounts to Vietnamese enterprises under the Law on Enterprise Income Tax.

Article 11. Effect

This Decree takes effect on June 27, 2009.

Article 12. Implementation responsibility The Minister of Defense, ministers, heads of ministerial-level agencies and government-attached agencies, presidents of provincial-level People's Committees and organizations and individuals engaged in defense industry activities shall implement this Decree.

APPENDIX

LIST OF PRODUCTS AND SERVICES FOR DEFENSE OR SECURITY
(To the Government's Decree No. 46/2009/ND-CP of May 13, 2009)

List A

PRODUCTS AND SERVICES FOR DEFENSE OR SECURITY PRODUCED OR PROVIDED BY CORE DEFENSE INDUSTRY ESTABLISHMENTS BY THE MODE OF ORDER PLACEMENT OR PLAN ASSIGNMENT

1. Production and repair of weapons and military materials; technical equipment and facilities; cipher equipment, tools and documents for defense or security.

2. Production of explosives and chemicals for defense; radioactive substances.

3. Printing of political and military documents, books and newspapers for defense or security.

4. Performance of special defense or security tasks under the Prime Minister's decisions.

List B

PRODUCTS AND SERVICES FOR DEFENSE OR SECURITY PRODUCED OR PROVIDED BY ORGANIZATIONS AND INDIVIDUALS ENGAGED IN DEFENSE INDUSTRY ACTIVITIES BY THE MODE OF ORDER PLACEMENT OR BIDDING

1. Production of one or several of mechanical product details (casting, thermo-metallurgy, plating, precision mechanical processing, plastic or composite details) of group 1 and chemicals of group 2 of List A.

2. Capital construction of defense or security works and work items.

3. Production and complete assembly; management and maintenance of high-voltage or low-voltage power transmission lines in service of defense or security works.

4. Construction, management and maintenance of roads; water supply and drainage systems within defense or security works.